50-plus crowd sitting on $300 billion in low-growth investments
Older Canadians aged 50 or older — most of them post-war "baby boomers" — are sitting on some $300 billion in low-growth investments, according to Russell Investments Canada Ltd. Based on data compiled by Ipsos Reid, it found this group is holding about 25% in GICs (Guaranteed Investment Certificates) and High Interest Savings Accounts in their portfolios: the most in those investments in nine years.
"Investors have had to deal with significant market volatility over the past two years, so it is expected that many Canadians have a lower risk tolerance and a higher desire for security," says Russell managing director Fred Pinto, Distribution Services [pictured] in a release issued this morning. "However, too many Canadians are earning unnecessary low returns. GICs and savings accounts do not yield enough after-tax returns to position portfolios for retirement and deliver the income needed in retirement, particularly if you factor long-term inflation expectations."
In a brochure entitled 300 billion reasons to talk to Russell Investments, the firm says the average 3-year GIC currently yields "barely over 2.0%" while a typical High Interest Savings Account pays less than 1.5%. After taxes, that won't even keep pace with inflation.
In an interview, Pinto says simply "It's not a good time for cash. Investors should move up the risk spectrum."
Double-digit gains last year from taking slightly higher risk
Pinto points out that some globally-managed bond and conservative balanced funds posted double-digit gains last year. Such investments do entail taking on slightly more investment risk, but "are much more able to address longevity risk – the risk of outliving one's money in retirement."
While $300 billion may not seem that huge in this era of bailouts, Russell says it's more than half the mutual fund assets in Canada, five times Warren Buffett's net worth, and more than the market value of Wal-Mart.
A $5.5 million opportunity for each of 55,000 financial advisors
Russell sees that mountain of cash sitting on the sidelines as a great opportunity for financial advisors to get their clients to put the money to work and build their retirement nest eggs. The brochure points out that $300 billion works out to $5.5 million each for the 55,000 financial advisors Russell estimates are practicing in Canada. Pinto said Russell does business mainly with advisors in the MFDA and IIROC channel, and that when life insurance agents and others are included, the total number of advisors may be 100,000.
Fixed income funds better than bond ladders?
Asked about longer-term bonds and the risk of rising interest rates, Pinto said fixed income still needs to be part of broadly diversified portfolio. But rather than a ladder of bonds, he thinks fixed income funds are a better bet if they hold a mix of government and corporate bonds of various maturities. Russell sells six pool funds, including two Fixed Income Pools and a Diversified Monthly Income Portfolio.
For younger investors still at least 20 years from retirement, Pinto suggests a mix of 65% equity to 35% fixed income. For investors already in retirement or approaching it, he suggests making the mix the reverse: 65% fixed income to 35% equiuties. That can be delivered by the Russell Retirement Essential Portfolio. It also has a Canadian Dividend Pool and a Managed Yield Class pool.
For more, click here. There you can find Pinto featured in various videos.
–62–
Source The Wealthy Boomer : Retirement
Posted in
Leave a Reply